Beijing hikes interest rate then looks for cheap oil

Perhaps to no one’s surprise, after a hot CPI reading on Tuesday, China’s central bank lifted the benchmark lending and deposit rates on Friday. The 27 basis points move is the fifth such increase this year by the People’s Bank of China, second in less than 30 days. The PBoC last hiked rates on August 22. One year deposit rate now stands at 3.87 percent from 3.6 percent previously; and one year lending rate is also 27 basis points higher, at 7.29 percent. PBoC governor Zhou Xiaochuan is targeting a positive real interest rate. Real interest is nominal interest rate less inflation. With annual CPI around 4 percent, most economists believe that China will raise interest rate at least once more this year.With world oil price hitting a record high and closing above USD $80 a barrel for the first time, China is working feverishly to secure a steady stream of cheap alternative supply infrastructure. The latest chapter has several “large” Chinese oil companies talking to South African coal producer SASOL for a joint project to develop coal-to-liquid plants in China. Coal, while significantly cheaper than oil is far more polluting. However, SASOL has mastered technologies to turn solid coal into liquid fuel, and in the process removing heavy pollutants such as sulphur, mercury, ash and carbon dioxide. And the best part, production cost is pegged around $30 per equivalent barrel of oil. SASOL (SSL) closed at $42.44 on the NYSE on Friday, just 30 cents below its 52 week high.Jay Sheng is Shanghaiist’s Business Editor. Email tips, news and gossip about business in Shanghai and China to biz at shanghaiist.com.